Friday, January 15, 2010

Project Z - DBC

This is post #3 of Project Z.
Today we're taking a look at the relative linearity and performance of the DBC/VXX pair as a component of our rotation model.
The DBC is the PowerShares double commodity index and has a current beta of only .66 . . considerably less than the previous rotation model components we've examined.
I could have used the UYM (beta 2.92) the PowerShares ultra basic materials or the XLB (beta 1.25) Spyder sector basic materials to reflect the materials/commodities component of the rotation model, but for illustration purposes we'll just track the DBC.
The XLB has the most robust option chain of the 3, the UYM has the thinnest.
Just as an aside, the UYM works almost as well as the DBC in the Lazy Man model.
One of the consequences of the DBC's low beta is a resultant higher N day value (15) than we've seen before. I've allowed the bands to run 2 more days before initiating the fixed bar stop.
There's still a little problem with the fixed stop algorithm timing as shown by the red highlights and Jeff is currently addressing that issue. We actually had a double entry on the last trade confusing the stop algorithm into thinking there was still time to run. That will be corrected and the trade entered on 12-16 would actually end on 1-6 with a resultant %2 loss in lieu of the -19.66% shown. Another difference between the DBC and the previous ETFs is the balance of long and short trades . . in this case 4 shorts and 5 longs.

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